Rentals in 2022 rose by 20-25 per cent against pre-pandemic levels, with some of the more popular areas seeing more than a 30 per cent increase, states an industry expert, suggesting that current rental demand will continue to remain strong in 2023 as urban work opportunities rise and more people migrate to cities.
Anuj Puri, chairman of Anarock Group, has stated that rentals demand saw a growth in 2022 and will continue to rise in 2023.
“Rental demand increased substantially in 2022 and will continue to rise in 2023. With more companies calling their employees back to the office, at the very least in the hybrid model, rental demand rose last year after softening considerably during the worst of the pandemic. Rental market demand surpassed pre-pandemic levels, and many housing societies have a few or no vacancies. Rentals rose by 20-25 per cent against pre-pandemic levels on an average in 2022, with some of the more popular areas seeing more than a 30 per cent increase,” reports quoted Puri as saying.
Mass layoffs in the last few months, tightening of finances and household budgets, ‘back to office’ policy and rising property prices have all contributed in the increase in rental demand.
According to recent report by ANAROCK Research, the last five years have seen an increase of over 11 per cent across the top 7 cities (from INR 5,551 per sq. ft. in 2018 to approx. INR 6,150 per sq. ft. in 2022).
The year 2022 saw the maximum yearly rise (6 per cent) in average property prices (INR 5,826 per sq. ft. in 2021 to INR 6,150 per sq. ft. in 2022). The previous four years, on the other hand, saw either no change or a maximum of 3-4 per cent y-o-y increase in 2021 against 2020. Before the Covid-19 pandemic, property prices across cities remained range-bound due to a prolonged demand slowdown.
Among the cities, southern cities of Bengaluru and Hyderabad have seen maximum 5-yearly increase of 10 per cent in average property prices in last five years.
Rental yield saw a decline across most cities in 2020 when compared to 2019 – a natural fallout of the pandemic and its work-from-home and e-schooling ethos. 2021 saw some improvement, with rental yields rising across cities and nearing 2019 levels. However, 2022 saw a decent rise in rental yields, which breached pre-Covid levels of 2019 across all the top seven cities.
“There is little reason to be pessimistic in the current year, though under-researched investments and a short-term profit perspective must be avoided in 2023,” it said.
“That said, 2023 will face some headwinds in terms of economic slowdown and inflationary pressure, and this needs to be factored into any investment decision – including for real estate,” reports quoted Prashant Thakur, Senior Director and Head – Research, ANAROCK Group, as saying.
ANAROCK Research indicates that Bengaluru has the highest rental yield of 3.9 per cent among all major cities, followed by Mumbai with 3.8 per cent.
2023 will continue to be driven by end-user demand, but serious long-term investors will find the market dynamics more than favourable. Property prices are likely to rise by another 5-8 per cent in the larger cities, bringing a good news for investors focused on capital appreciation.
Another industry report suggest similar market sentiments. According to a Magicbricks report, the average home rents went up by 13.5 per cent in 2022 and are expected to continue to rise as prospective homebuyers may defer their purchase decisions and opt for rental homes.